August 29, 2007 | posted by Michael Baxter in IABN | comments (0) |

Mortgage demand remained remarkably robust in July. Sure, when compared to July 2006, house purchase approvals were down 1 per cent by number but they were up 12 per cent by value; re-mortgaging approvals were up 12 per cent by number and up 26 per cent by value; approvals for equity withdrawal were down 2 per cent by number and up 10 per cent by value.

David Dooks, BBA Director of Statistics, said, “With customers seeking to replace deals or fix their mortgage costs, increased re-mortgaging activity boosted the banks’ lending in July. Lower approvals volumes simply reflected the seasonal pattern, so we expect the stable trend in the banks’ lending to continue over the next couple of months.

“Spending on credit cards was 8 per cent higher than in July last year, but because cardholders are at least matching their spending with repayments, card borrowing continued to decline.”
Copyright #169; 1996-2007 Find.co.uk Limited. All rights reserved

August 29, 2007 | posted by Michael Baxter in IABN | comments (0) |

Tax has hit the headlines again. This time it was a report from the National Audit Office that got the blood boiling. Analysis of the figures showed that of the 700 largest companies in the UK, just 270 firms paid corporation tax in excess of £10 million. And 220 of the 700 firms paid no corporation tax at all.

Press and pressure groups immediately slammed corporate Britain and the tax system - saying that the current regime just benefits those who are clever with their accounting.

“Not so fast,” say some. Yesterday, HM Revenue and Customs hit back.

“It is ridiculous to suggest that business does not pay its fair share of tax,” it said and added “Businesses are using the capital allowances and deductions that government has put in place to stimulate investment, create jobs and build economic stability. These are not loopholes - these are properly policed business reliefs.”

And so the debate rumbles on. The UK benefits from successful business, it’s true. But if business pays little tax, then the Exchequer sees less benefit. Suppose the business employs only a modest workforce, or labour is recruited from abroad, then once again it could be argued the UK sees only modest gain.

The other big benefit enjoyed by the UK from booming business is that it results in demand for other services. Accountancy firms, cleaners and car sellers, local coffee shops and landlords all do well when business grows. So, even if business pays the minimum tax and employs a small workforce, UK PLC can still benefit.

But equally, if business comes to the UK to benefit from its favourable tax regime, takes on highly paid staff from abroad, then the result can be increases in house prices and luxury goods: it could be argued that the average Brit, especially the average Brit who does not own a property, loses out.

Today, the UK is doing very well out of the favourable tax regime - it’s certainly a factor behind our remarkable run of uninterrupted economic growth, but there could be problems for the future.
Copyright #169; 1996-2007 Find.co.uk Limited. All rights reserved

August 29, 2007 | posted by Michael Baxter in IABN | comments (0) |

When the heat is on, fire can break out so easily. Not only has this been proven true in Greece, this week it was borne out in the financial markets.
The FT broke the news, the casualty was Barclays and its rival in the battle for control of ABN Amro, RBS, put the boot in.
First, turn your attention to Germany. Europe’s first high profile casualty of the US sub-prime crisis was Germany’s state owned bank SachsenLB. So hard was it hit, that the bank nearly collapsed, and this weekend in an act of desperation, was sold to Germany’s biggest regional bank LBBW.
It was an ignominious mark on the German banking scene - a banking sphere so long known for its prudent lending.
But, then again, it appears Barclays was caught up in the unhappy saga for it was the UK bank which gave advice to SachsenLB, and just three months before its collapse, Barclays set up one of those SIV-lite funds on behalf of the German bank.
Then, last week Standard Poor’s warned that the fund might have to be wound up.
‘Phew,’ said some. That was a lucky escape for Barclays - it was a good job it didn’t put its money where its mouth was, and follow up its advice by injecting capital into the fund.
But, yesterday, the FT suggested that is precisely what Barclays may have done. The article said that Barclays had given a form of guarantee on the fund it had set up, so that if it ran into trouble, the bank was obliged to pour in some cash - cash that could run into hundreds of millions of dollars.
Salt was rubbed into the wound, when a note from RBS said, “Typically Barclays is a liquidity provider to the SIV-lites it has structured and it appears that Barclays is able to withdraw its committed credit line should the #91;net asset value#93; of the SIV-lite fall by more than 10 per cent.”
The note added, however, that “it remains debatable whether Barclays would actually do this and regardless the exposure it retains is material.”
And with all that talk, with the financial world treading on a carpet of dry tinder, wild fire broke out, and the Barclays share price fell by over 3 per cent.
The UK bank was quick to deny a major crisis in the making and in a statement said “To say we have hundreds of millions of dollars of exposure to SIV-lites generally is inaccurate.”
Hmm. “Generally inaccurate,” is not exactly a full-blown denial.
The plot thickens further. Last week, Barclays lost one of its gurus, the man behind SIV-lites.
As you no doubt know, SIV-lites have been pretty much centre stage over the last few weeks. They are a lot like Collateralized Debt Obligations (CDOs), in that they are bonds which have exposure to various forms of debt - often bringing sub-prime, and corporate financing together under one roof. The big difference between CDOs and SIV-lites is where they go to raise money. CDOs raise money from the long-term debt markets, SIV-lites raise debt in the form of short-term loans: precisely the type of liquidly that virtually dried up earlier this month.
For a while they seemed like a good idea, and Edward Cahill, the Barclays man behind SIV-lites, became the star of the show - revered within Barclays, bringing back memories of the star status once enjoyed by Nick Leeson at Barings.
But, last week, Mr. Cahill resigned. No one seems to know why. Given what’s been going on, there is surely no surprise. Some say his departure is down to the fact that his great idea has turned to dust. Others look for a more sinister explanation. They say there is no smoke without fire.
Alternatively, maybe Mr. Cahill decided he had enough, and that who needs all this stress, when you have got a nice fat bonus to enjoy. Perhaps he could use it for holidaying somewhere hot. Like Greece.

For further information
It’s so easy to be wise in hindsight. So follow this link, and enjoy your wisdom born of hindsight. It’s an explanation of SIV-lites when they were thought to be a good idea - Risk
Copyright #169; 1996-2007 Find.co.uk Limited. All rights reserved

August 28, 2007 | posted by Michael Baxter in IABN | comments (0) |

During the point of maximum market turmoil earlier this month, the Daily Mail reassured us all. The UK property market is not like the US market: there has been no boom in building and so there will be no UK property market crisis, it suggested.

And yet many, including the IMF, ABN Amro and Fitch, have warned that the UK is more vulnerable to a property market slowdown than the US.

The Nationwide now predicts house price rises of 2 to 4 per cent this year, Home track is forecasting 1 to 2 per cent, and Rightmove pinpointed a 0.1 per cent fall in house prices in London.

The City suffers from financial turmoil. According to Challenger, Gray and Christmas - a consultancy firm - there have been 90,000 job loses in financial services this year. We all know how reliant the UK is on business services these days, in fact the latest data from the Office of National Statistics says this sector now makes up a third of the economy.

Recently the FT headlined that US sub prime problems could hit London property.

And then there’s buy to let. The FT has calculated that the average gross on a property is now 5 per cent, but after costs such as maintenance and voids, net yields are just 3.5 per cent.

This is significant for more than one reason. First it highlights the danger of buy to let landlords selling property and secondly the modest level of rent suggests the massive demand from immigrants for our homes is not as great as had been warned. Demand outstripping supply is supposed to mean house prices will carry on rising, but if this is so, why is rental inflation so modest?

The most telling data came from the Council of Mortgage Lenders.

Re-mortgaging lending has reached a new record for June - at £34.4 bn it was 13 per cent up on a year earlier. And yet according to the Building Societies Association, mortgage approvals fell in July.

In other words, people are still using value tied up in their property to fund their expenditure - maybe even their debt repayments.

This means the danger that demand will continue to be greater than supply remains, inflation pressures remain, and the Bank of England may not be able to lower rates after all.

But sooner or later, and sooner especially if the credit crunch spreads, people won’t be able to just keep on using high asset prices as a way to prop up their spending.

Right now, the UK property market is in a great deal of danger, and as of now, this danger has been largely ignored.

Newfangled CDOs hide the true extent of exposure among lenders. These devices ignore the old fashioned danger of falling asset prices: if our houses fall in value, our debt-to-wealth ratios hit new and unsustainable levels across the board.
Copyright #169; 1996-2007 Find.co.uk Limited. All rights reserved

August 28, 2007 | posted by Michael Baxter in IABN | comments (0) |

The global economy is enjoying unprecedented growth - the US has now 60 quarters of uninterrupted growth - its best ever performance. And as for the UK stock market? The average price to earnings ratio of a UK stock is now 12. That’s the lowest level since 1991.

There’s plenty of money out there. It’s just that it is sitting in the vaults of the central banks of the developing world and Japan. It seems reasonable to assume sooner or later this money will find its way into shares, boosting equities at the expense of bonds.

Then there’s the UK. Just when she needs to see an end to the rising rate of interest, signs emerge that Bank of England may have gotten away with it.

UK inflation in July fell to 1.9 per cent from 2.4 per cent in June and average pay was up by just 3.3 per cent in the 12 months to June

Yet, while the Fed and ECB make all kinds of noises, the Bank of England is noticeable only by its silence.

Just before the crisis hit, its latest inflation report suggested interest rates would need to go up once more, but it had changed its mind before. Back in 1998, the Bank of England warned inflation risks were on the upside, then the Long Term Capital Management crisis occurred, and the Bank lowered rates.

One would assume that if the fundamental problem creating inflation pressures was too much credit, then a credit squeeze will take the heat off.

It really does seem to depend on China et al. What will China do with all its reserves?

It’s still quite possible that August shenanigans were no more than an annual summer time hiccup. There’s wisdom in that adage “sell in May, and go away.”
Copyright #169; 1996-2007 Find.co.uk Limited. All rights reserved

August 28, 2007 | posted by Michael Baxter in IABN | comments (0) |

The August round of the financial crisis started when it emerged US giant mortgage lender Countrywide might go bust. Angelo Mozilo, boss at the mortgage lenders, said America is at the mercy of “destructive housing deflation.”

On August 15 the FTSE 100 suffered its biggest one day fall since 2003. But, there was more to the crisis than the woes at Countrywide.

Data emerged to tell how US constructions starts were at their lowest level for ten years.

Wal-Mart added to the misery when its boss H Lee Scott said “Many customers are running out of money towards the end of the month.”

Private equity giant KKR postponed its $1.25 billion IPO, and speculation suggested it was having trouble rustling up the readies to fund its $45 billion of Texas energy company TXU and in the UK, the £11bn purchase of Boots.

Private Equities’ interest in Virgin media appeared to be off, NASDAQ even gave up on its hope of buying the London Stock Exchange, while Solent’s $4.3bn MainSail II fund and Avendis’s $5bn Golden Key Fund were forced to sell assets because they could not raise short-term financing.

Banks panicked. They fretted that other banks and hedge funds had taken on too much debt via these mysterious CDOs (Collateralised Debt Obligations), in which debts including sub prime, from credit cards and corporate financing can be clubbed together under one bond and then syndicated across many lenders.

Writing in the Sunday Times, Ian Rushbrook of Personal Assets Trust said “We have a huge credit bubble#133;if the US banking system sustains actual losses of around $100 bn as some estimates suggest then the implications are enormous. Banks globally will have to reduce their lending by up to $1,200bn, causing a debt crunch.” He predicted that the FTSE 100 would fall to 4,500 - down 25 per cent.

Then, the central banks stepped in. Fed chairman Ben Bernanke once said the answer to liquidity problems is to jump into a helicopter and shower the country with cash - and in a way that’s what helicopter Ben and the European Central Bank (ECB) did.

The Fed soothed nerves when it said “The Fed is monitoring the situation and is prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in the financial markets.” At the ECB, President Jean-Claude Trichet said “I call on all parties concerned to keep their composure” and said the bank will help “consolidate a smooth return to normal assessment of risks in liquid markets.”

And with that, the two central banks pumped in money. Over $150bn worth of short term financing was made available. That helped.

US Fed policy maker William Poole said “only a calamity” would justify a snap cut in interest rates. And yet that was what the Fed did. At least, it lowered the discount rate. That helped some more.

It was enough. Markets picked up, although not everyone was pleased. Carl Weinberg of High Frequency Economics said, “I am nervous. I am worried the Fed knows something we don’t.”

As of this morning, the Dow Jones stood at 13322. That’s 678 points down on the year high, set in mid July, but 859 points up on the start of year position, and 1271 points up on the year low.

The FTSE 100 stands at 6220: 709 points down on the year high, and just 0.1 points up on the year start.

It’s funny isn’t it? This is fundamentally a crisis that is “Made in America” and yet this year, the FTSE 100 has performed much worse.
Copyright #169; 1996-2007 Find.co.uk Limited. All rights reserved

August 28, 2007 | posted by Michael Baxter in IABN | comments (0) |

In the world of global finance
there are no beginnings. To find the cause of a particular event, you always need to rewind the clock a little bit further - but to try and explain the crisis that fell upon financial markets this month, a good starting point might be the late ’90s, a time when Alan Greenspan was the head man at the US Federal Reserve, and the global economy suffered three major crises.

There was the East Asia crisis, the Russian crisis and the collapse of Long Term Credit Management (LTCM). On each occasion, many feared a major fallout, but Mr Greenspan leapt into action and would often react to market turbulence by lowering the rate of interest. This became known as the “Greenspan Put”, which is so named because it had the same desired effect as a put in the derivatives markets. A put enables investors to bet on a fall in the markets, so they can benefit from those negative conditions. The Greenspan Put meant that every time there were problems, the Fed would wade in and come to the rescue. So, markets could relax. They didn’t need to bet on the downside, because the Fed would ensure the downside never happened. It’s all very John Wayne.

But something else happened during this period. While the US and the rest of the developed world saw a form of Keynesian economics: boosting demand to deal with trouble, the developing world saw the opposite approach. The IMF imposed a fiscal straight jacket on the Tiger economies of the Far East and then Russia - enforcing years of hardship.

If you ever take the trouble to read the account of the saga written by former chief economist at the World Bank, Joseph Stiglitz, it’s enough to make the hairs stand up on your neck. Economies with massive potential capacity were forced to rein back demand, and maintain their currencies at high levels, while the US boosted demand even though capacity was near its optimum. It was back to front, and this month we saw the consequence.

But, don’t worry too much, because the solution is at hand. All that needs to happen is for Mr Greenspan’s successor, Ben Bernanke, to implement his own put.

He has already done it to an extent; on August 16 he reduced the US discount rate. Note: this is not the main US rate of interest that pundits follow and which relates to the level banks are supposed to lend to each other. The discount rate is the level at which the Fed lends money if it is called upon to act in its capacity of lender of last resort.

And with that move, markets picked up. Right now the Dow Jones index is 476 points up on the level before the rate of interest move.

So, Bernanke waves his magic wand and all is well. Phew. It’s thought he will try some more magic soon and, in a spell Harry Potter would be proud of, will scream out, “interestibus reductorum”. All those demons of the financial sector, the real life Voldemorts, will be dispelled.

The “Bernanke Put” we have already seen came in the wake of much pleading. In the US we saw this from captains of industry. For example, Ford CEO Alan Mulally said, “It is a really important job to manage inflation and economic growth, (but) focusing on economic growth appears to be a really important priority right now.”

But is the solution really that simple? The man called the Sage of Omaha, the Oracle of the investment world, Warren Buffet, talks about the US suffering from a massive hangover, the inevitable consequence of an almighty binge. The Fed appears to be dealing with the problem with some hair of the dog - like it has always done.

Is this the right approach? It depends on your view of recessions. Some think recession can be a good thing; they enable an economy to re-tune, to sort out the wheat from the chaff, and emerge lean, mean and ready to grow. Others see recessions as a wasted opportunity. Every time an economy grows by 1 per cent below historical average then we are all 1 per cent worse off than we could have been.

So, whether you believe the markets can be saved by expansionary monetary policy depends on whether you feel we are witnessing a hiccup, which central banks can soothe, or something more sinister, and that by reducing rates, central banks are merely dealing with the symptoms, enabling our behaviour to continue, and allowing us to hide from the true problems.

What is the true problem? The world is out of balance. The economies of China, Japan, Russia, South Korea, Taiwan, Singapore, India, Brazil, Malaysia and Thailand have massive levels of foreign reserves. They have learnt never to trust in the IMF again, they have learnt that the US will never give them a put, so they have gone the other way, keeping their currencies low. China is of course the key: with a staggering $1.3 trillion of reserves, roughly the same levels as Russia, South Korea, Taiwan, India, Brazil, Singapore, Malaysia and Thailand combined, and with the Chinese propensity to save, all that extra capacity from the developed world is not being matched by extra demand. But, given the way these countries have been treated in the past, you can’t blame them. As for China, it has learnt from the mistakes its neighbours made.

And so, we import cheap products from the developing world, but to a large extent we don’t pay for them - we are loaned the money to buy these products. China’s policy of keeping the yuan down means we are in effect being offered hire purchase terms, but at rock bottom rates, repayable over an extended time frame.

So, low inflation thanks to cheap imports means a low rate of interest. Money flooding into the shores of the US and Europe from the developing world means there has been plenty of credit. The carry trade, in which people borrow in Japan where rates are so low, and lend elsewhere, has boosted credit and then there’s all those Fed puts following events such as the East Asia crisis, Russia, LTCM, the dot com crash, 9/11, Enron and WorldCom. Essentially, the Fed’s response has left us with lax monetary conditions.

While all this was happening, finance got very sophisticated. We saw the emergence of syndicated debt - CDOs, in which bonds carry all kinds of debt, from sub prime mortgages to corporate financing, and no one seemed to understand what was happening, who owned what. If we are being kind we could say the ratings agencies didn’t get it and wrongly gave bonds AAA credit status; others are more cynical and say the credit agencies gave out these treble A ratings because they were working for the very companies who were selling the bonds - shades of Arthur Andersen and Enron.

But the complexity of the CDOs carries its own danger. This month markets and banks panicked because no one seemed to know quite how much danger they were in.

Whatever the specifics of the market falls, which we will describe below, the root cause is this. There was too much debt and too much available credit, caused in part by interest rates that were forced down to try and soften a series of crises. Combine this with developing countries refusing to be drawn into the US way of doing things, like they once were, and the problem becomes clear.

The danger is this: every time the Fed and other central banks implement a solution that involves lowering the rate of interest, they simply reinforce the underlying problem.
Copyright #169; 1996-2007 Find.co.uk Limited. All rights reserved

August 24, 2007 | posted by Michael Baxter in IABN | comments (0) |

The surprise is anyone is surprised. The writing was on the wall for all to read three years ago. But moving forward, we wonder if a new writing is appearing. Be careful, here, Bank of England, don’t forget we are dealing with long term forces. What you do now may not have its full impact for 18 months, perhaps even, a lot longer.

Three years ago we regularly scratched our head. We used to say that if inflation is not the eventual result of all the excess government and consumer borrowing, then just about every macro economic text book ever written will have to be thrown away.

But, it appears many, and the Bank of England is very much included in this list, buried their head in the sand.

The high level of consumer borrowing, the Bank used to say, was affordable because asset prices were going up. In short, our borrowing was matched by higher house prices, therefore it was affordable. Can you spot the flaw in that argument?

In fairness to the Bank, it was in a tight spot. After 11 September 2001, central banks made a concerted effort to keep the global economy from crashing. Rates were dropped, perhaps too far. Earlier this year, the Bank of England’s former governor Eddie George told a Treasury Select Committee, “We knew that we were having to stimulate consumer spending. We knew we had pushed it up to levels which couldn’t possibly be sustained into the medium and long term. But for the time being, if we had not done that, the UK economy would have gone into recession just as the United States did.”

Lord George added “My legacy to the MPC, if you like, has been ’sort that out’.

So, maybe you can forgive initial enthusiasm to lower rates. But when the UK economy stayed well away from recession territory, and it was clear the uninterrupted run of economic growth was continuing, why were interest rates so low?

Why was it, for example, that in August 2005 the rate of interest was lowered from 4.75 to 4.5 per cent?

We were in good company. The Economist magazine also used to warn that inflation was slowly gathering momentum.

Of course, two things made the difference. The Internet helped encourage unprecedented price competition, and there was China. So, instead of inflation occurring on the high street, it occurred in the backstreets away from the shopping roads. In appeared in housing estates, in residential areas: inflation occurred in the form of higher house prices. It seemed inevitable that sooner or later this house price inflation would be transferred to the high street.

Today, maybe the Internet effect has worked through the system, or, to put it another way, some prices fell thanks to price competition, but they aren’t going to fall much further.

As for China, it appears that the gradual rise in its consumer society behind the Great Wall means that global demand is rising. Combine this with the use of food crops as biofuel, and you see why the cost of food is increasing.

As for consumer spending, this has been encouraged by higher house prices, creating a false view of how much we could afford to spend.

This is why inflation is higher today, this is why the rate of interest keeps going up. It’s down to what happened some time ago.

But, equally, it appears there are dangers. And just as the Bank of England was far, far, too slow to spot the dangers of inflation, maybe there is a risk it is now being equally slow to spot the opposite danger.

Recently, the FT warned that interest rates could hit 6.25 per cent. The Bank of England has assumed rates wil hit 6 per cent, in its latest inflation report.

And yet there are plenty of reasons to think that actually the economy is going to slow anyway.

For one thing, there are a million people on fixed mortgages who will be seeing an end to the fixed term later this year. Or so says the Council of Mortgage Lenders. When they took out their fixed mortgage, interest rates were probably 4.5 per cent; when the term comes to an end rates will be 5.75 per cent - that’s a big hike.

In any case, remember that report we published last month from Ernst and Young. It said that after tax contributions, mortgage payments and monthly household bills, the average family now has just over 22 per cent of its gross income left over, as opposed to over 28 per cent in 2003. Ernst and Young says that the average household now has £837.53 to spend each month after total fixed monthly outgoings, compared with £898.54 in 2003/04.

According to the Woolwich the average amount of income spent on mortgages by people in their 20s, is 32.4 per cent, the highest level since records began in 2002.

If rates stay at this level, the consumer will feel the pinch, the economy will slow, it will just take time. It takes time for excess borrowing caused by rates that are too low to create inflation, it takes time for hard up consumers reining back on their spending, to ease inflation

If you are driving a heavy car, and you press the accelerator, you know the vehicle won’t respond straight away. But if you keep the pedal down, then all of a sudden the acceleration can be too much. These are the problems a learner driver must face. This is what has happened to the UK economy. But the learner driver can also slam the brakes too hard, in panic, because the vehicle does not react instantly. This has become a danger for the UK.

There is a danger, that just as the Bank of England kept pushing its foot on the gas, even before it had given the economy time to react to the initial push on the accelerator, now there is a danger it is going to keep pressing the brakes, even though the economy has only just reacted to the initial depression on the brake pedal.

Copyright copy; 1996-2007 Find.co.uk Limited. All rights reserved

August 24, 2007 | posted by Michael Baxter in IABN | comments (0) |

Last month we told how the Brits lag behind our main economic competitors in terms of productivity. The Germans produce 14 per cent more than us, per hour worked, the workers of the US produce 18 per cent more than us, and the French 20 per cent more.
Now one can theorise to explain these differentials, especially the differential with France. One theory is that the French actually work more hours than they are officially saying, it’s just that French labour law forbids them from working more than 35 hours a week. (35 hours a week - wouldn’t that be nice - ed.)
Another theory is that French labour law is so restrictive, that employers only take on new staff if there is a very good reason to do so. If you like, the full employment level in France is set at a level that requires a higher marginal physical level of productivity.
But even so, 20 per cent more productive than the UK, that’s a big difference.
The Centre for Economic Performance at the London School of Economics, which produced the productivity report, put the UK differential down to a number of factors: low UK investment on RD, which is slowly being corrected by RD tax credits, the level of family-owned, and therefore inflexible businesses, planning and regulatory problems holding back the size of specific retail outlets - creating inefficiencies, but the big one was the E word - education.
Apparently, the UK now spends 5.6 per cent of its GDP on education. That’s near to the OECD average, and up from 4.8 per cent in 1987/88.
But, let’s just assume for a moment, that half of the productivity gap with France is explained by education. Now assume that if we were to double our education expenditure we would eventually have a work force which is just as well educated as the French. Based on the above assumptions, this would mean our productivity would improve by 10 per cent, leading to a 10 per cent jump in GDP. So that’s an extra 5.6 per cent of GDP on education, leading to 10 per cent increase in GDP - it’s a good return.
That’s not to say money is the only answer. Some say we just need to leave education alone, that its the constant need to tweak, and then change altogether, that is creating inefficiencies.
But what is quite interesting, is the way the French place different emphasis on maths. In France, the maths Olympics are popular and, apparently, the French, Russians and Chinese lead the field - with the Indians typically in fourth place.
In the UK, we just don’t seem to care about maths. Scrabble is a popular board game- in the TV show Countdown, maths is a small part of the puzzles, it’s the word puzzles and conundrum that take up most of the time.
In the UK, if you say “I was never any good at maths” people tend to laugh and say things like “know the feeling”. It’s as if there is status in not being good at maths.
But in the future, it seems that education will be ever more important in determining a country’s economic success. If the UK is to increasingly rely on its services sector, then we need to be aware this is a sector with relatively low barriers to entry, we could lose our pre-eminent position, quite easily.
Education today is not just below the level we would like, or need, it is woefully below that level. We need to re-think the priority we attach to education. Think of a number between one and ten that describes the importance you think education should have in our economy. Now double it; only then are you likely to be close to the mark.
So, what do you think? Agree or disagree? Tell me what you think on the editor’s blog at Find.co.uk

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August 23, 2007 | posted by Michael Baxter in IABN | comments (0) |

It was different in the early 1990s, or so they have been saying. Sure, our total level of borrowing to income was lower back then, but then the rate of interest was so much higher that the cost of servicing this debt was higher in return. That’s why it all proved so unaffordable, and house prices crashed and recession descended upon us, for the last time.

But today, so goes the argument, it’s different; rates are lower, so our debts are more affordable, ergo, no need to panic.

But, according to a new report from PricewaterhouseCoopers (PWC), actually the cost of servicing debt today, as a proportion of disposable income, is now higher than it has ever been.

PWC has calculated that debt service costs as a share of disposable income has hit a record level of almost 19 per cent in Q4 2006, as compared to a previous peak of just under 18 per cent in Q3 1990.

That’s not all, PWC also says discretionary disposable income growth - the amount of money left over to spend on goods and services after tax, rent and utility bills and debt service costs - has also been squeezed in recent years by rapid increases in domestic fuel and water bills and, to a somewhat lesser degree, by rising direct tax payments as a share of gross incomes.

PricewaterhouseCoopers estimates that household discretionary disposable income grew by only 3.1 per cent per annum on average in nominal terms in the three years from 2004 to 2006, compared to 5.2 per cent average growth in gross incomes and 4.7 per cent average growth in disposable incomes over this period.

Bear in mind, however, that the PWC findings understate the true picture.

For one thing, the study relates to the final quarter of 2006, and the rate of interest has increased three times since then.

Secondly, don’t forget that inflation no longer erodes the true value of debt like it used to.
But finally, there is this thing called MIRAS. Cast your mind back to the early ’90s, then we could enjoy tax relief on our mortgage. This is no longer available. John Hawksworth, head of macroeconomics at PricewaterhouseCoopers, told us that tax relief available on mortgages was not allowed for in the PWC figures.

And what conclusions can we draw? Firstly, how remarkable it is that the consumer keeps spending, when things are so tight.

Earlier this week we told how we are saving less, and this statistic can partly explain why the economy is still booming. We may have been forking out a higher proportion of our disposable income on servicing debt, but we are borrowing more, effectively releasing some of our perceived wealth which is tied up in the value of our properties.

Is this dangerous? Well, what do you think? Agree or disagree? Tell me what you think on the editor’s blog at Find.co.uk

Copyright copy; 1996-2007 Find.co.uk Limited. All rights reserved